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ChinaTechThreat.com Roslyn Layton [email protected] | John Strand [email protected] Stealing From the States: China’s Power Play in IT Contracts US State Governments’ Failure to Scrutinize the Purchase of Lenovo and Lexmark Equipment Jeopardizes Data Security Edited: 3/16/2020
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Page 1: Stealing From the States: China’s Power Play in IT Contracts · 2020-03-19 · ChinaTechThreat.com Roslyn Layton – Roslyn@chinatechthreat.com | John Strand – John@chinatechthreat.com

ChinaTechThreat.com Roslyn Layton – [email protected] | John Strand – [email protected]

Stealing From the States: China’s Power Play in IT Contracts US State Governments’ Failure to Scrutinize the Purchase of Lenovo and Lexmark Equipment Jeopardizes Data Security

Edited: 3/16/2020

Page 2: Stealing From the States: China’s Power Play in IT Contracts · 2020-03-19 · ChinaTechThreat.com Roslyn Layton – Roslyn@chinatechthreat.com | John Strand – John@chinatechthreat.com

ChinaTechThreat.com Roslyn Layton – [email protected] | John Strand – [email protected]

Stealing From States: China’s Power Play In IT Contracts

State Governments’ Failure to Scrutinize the Purchase of Lenovo and Lexmark Equipment Jeopardizes Data Security

TABLE OF CONTENTS

Executive Summary: ..................................................................................................................1

Background: ...............................................................................................................................2

Danger Ahead: China’s 2017 Internet Security Law ................................................................3

Military and Intelligence Bans of Lenovo and Lexmark Products ..........................................3

Lenovo’s Chinese Communist Party Connections and Suspect Product Insecurities ........4

Lexmark’s Chinese Communist Party Connections and Suspect Product Insecurities ......6

States Have No Standard Process to Evaluate Insecure Technology ...................................7

Case Study 1 – Lenovo in Wisconsin ..................................................................................... 11

Case Study 2 – lexmark in arkansas ....................................................................................... 12

Suggested Remedies ............................................................................................................... 14

By: Dr. Roslyn Layton, Co-Founder, China Tech Threat; Visiting Scholar, American Enterprise Institute;

Visiting Researcher, PhD Fellow, Center for Communications, Media and Information Technologies,

Aalborg University

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ChinaTechThreat.com Roslyn Layton – [email protected] | John Strand – [email protected]

EXECUTIVE SUMMARY:

American policymakers and media have widely covered the controversy over Chinese-owned and

affiliated technology companies Huawei Technologies Company (Huawei) and ZTE Corporation (ZTE)

in recent years, but other Chinese corporations present similar threats to US national security. In July

2019 the Department of Defense Inspector General highlighted some $33 million in purchases by the

Pentagon of commercial off the shelf (COTS) Lexmark and Lenovo products, which have been noted on

the National Vulnerability Database because of security deficiencies. Like Huawei and ZTE, Lexmark

and Lenovo are Chinese-owned and banned by multiple military and intelligence agencies in the U.S. and

around the globe. This paper expands on these concerns by exploring the threats present within state

governments with the purchase of Lexmark and Lenovo products.

Key findings:

1. Chinese information technology vendors that have been banned from US military and intelligence

networks still contract with state governments. Once the products from these vendors are installed,

they can access sensitive personal and financial information held by courts, police departments,

elections departments, education departments, children and family services, and other social

service providers and agencies.

2. A sample of publicly-available contracts negotiated between state governments and Chinese

technology vendors shows that information transmitted on the vendors’ equipment is now subject

to collection, transfer, processing and inspection by the vendor, and could be transferred to any

country where the vendor does business and to any entity with whom it works. For example, one

US sales agreement with technology manufacturer Lenovo states that data can collected on

devices can be transferred to any country where Lenovo does business In any event, China’s 2017

National Intelligence Law compels this.

3. The National Association of State Procurement Officers (NASPO) frequently negotiates contracts

on behalf of its members. However, security is not a parameter of NASPO’s evaluations. While

federal policy directs information security for federal agencies, states must determine their own

information security standards. NASPO’s collective contract with Lenovo was initiated in 2015

and ends in March 2020; Lexmark’s collective agreement with organization ends in 2021.

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BACKGROUND:

At the federal level, Chinese government-owned vendors Huawei and ZTE have been restricted from US

federal government installations and commercial telecommunication networks because backdoors in the

equipment could enable espionage, surveillance, or sabotage.1 US states are also vulnerable to these and

other Chinese vendors. Federal policy highlights that Chinese-owned technology firms present threats to

national security. In addition to Huawei and ZTE, Section 889(f)(3) of the 2019 NDAA prohibits US

military purchase of video surveillance and telecommunications equipment produced by Hytera

Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology

Company or any subsidiary or affiliate of such entities.2 The Department of Commerce’s Entity List and

National Vulnerability Database list additional Chinese controlled technology firms identified for the

vulnerabilities embedded within their products.3

The Federal Communications Commission adopted rules that prohibit monies from Universal Service

Fund, about $9 billion annually, to be used on vendors and equipment that pose a national security risk.4

Those risks include but are not limited to surveillance, denial of service attacks, and the loss of integrity

and confidentiality of networks. Huawei and ZTE are noted as covered companies in the order, and the

FCC further moves to require USF recipients to remove and replace equipment from covered companies

as well as to collect information to determine to what extent products and services from such covered

companies exist in networks.5

Cyber incidents have grown exponentially more common in recent years, with the World Economic

Forum listing mass data breaches and cyberattacks as two of the five largest risks facing the world in both

2018 and 2019.6 State governments have a faced the growing trend of cyberattacks in the form of

hacktivism and ransomware attacks on network infrastructure, costing governments millions of dollars

and eroding public confidence in civil institutions.7

With state budgets increasingly stretched, low-priced Chinese technology has gained appeal. However,

there is no systematic way for state procurement officers to determine whether the equipment they

purchase is safe.8 Various federal authorities review the vulnerabilities of Chinese-made information

technology products, but the results of these reviews are either classified, or are not published in a user-

friendly way.

Chinese hardware and software can facilitate the transfer of data to China where it can be collected,

inspected, and processed by the Chinese Communist Party (CCP) and related actors.11 While this can be

done illicitly, the contracts of Lenovo and Lexmark, like other Chinese-owned firms, stipulate as much.

State government information officers rely on organizations such as NASPO to validate procurement

contracts. However, information security is not currently part of NASPO’s responsibility.9 While NASPO

can help a state develop a fiscally responsible procurement contract, it does not necessarily shed light of

the information security of contracted products.10 State procurement officers likely need additional tools

and processes to conduct the information security assessment.

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DANGER AHEAD: CHINA’S 2017 INTERNET SECURITY LAW

In 2016 the Chinese Communist Party, through the Standing Committee of the National People’s

Congress, passed the China Internet Security Law which went into effect in June of 2017.12 This law

requires network operators, including all companies headquartered in China, to store select data within

country and allows for Chinese authorities to do ‘spot-checks’ on a company’s network operations.13

These spot checks are conducted in a way that allows for unmitigated access to information stored by

“network operators and critical industry leaders.” The Chinese legislation defines “network” as any

system comprised of computers and related equipment that gathers, stores, transmits, exchanges or

processes information – meaning the law is applicable to nearly all businesses in China that operate their

own email or other data networks.14

Critical sectors are also defined in the law,

encompassing businesses involved in communications,

information services, energy transport, water, financial

services, public services and electronic government

services.15 Any company that is a supplier or partner

with firms in these Chinese business sectors could also

be subject to the law.16

Especially concerning to American business interests is Article 37 of the Chinese Intelligence Law,

requiring network operators in critical sectors to store data within mainland China that is gathered or

produced by any Chinese operator.17

Lenovo and Lexmark, Chinese controlled companies with ownership ties to the Chinese Communist

Party, are subject to the aforementioned cybersecurity law, therefore posing an immense threat to Western

users of these technology products. The transfer and storage of consumer data to mainland China

introduces American users to the possibility of Chinese government data collection, compromising the

data security and privacy of millions of Americans.

MILITARY AND INTELLIGENCE BANS OF LENOVO AND LEXMARK PRODUCTS

In 2019, the Department of Defense Office of the Inspector General released an audit regarding the

purchase of Commercial Off-the-Shelf (COTS) items by employees and the security ramifications of

those purchases.18 Referenced in that report was the purchasing of Lenovo laptops and Lexmark printers,

COTS items with histories of security vulnerabilities exploitable by a technological adversary like the

Chinese Communist Party (CCP).19

Lenovo has drawn scrutiny for its integration into defense infrastructure in the United States, as the US

Air Force20 raised concerns about Lenovo computers and the US Navy has banned the products from its

platforms for more than ten years. After the installation of Lenovo servers onboard naval ships, the Navy

decided to rid the defense craft of the equipment for fears of cyber-breach.21

Lexmark has been the subject of various reports regarding cyber threats and espionage risk, with the

printer company facing allegations from various technology experts and conglomerates regarding

adversarial use of the company’s printers as a medium for cyber intrusion.22 Printers, one of the least

secure Internet of Things devices, store sensitive data on internal hard drives derived from the various

printing jobs executed on a day-to-day basis. This sensitive data can be accessed through various software

vulnerabilities in the printer, making sensitive documentation visible to adversaries and foreign actors.

“… the China Internet Security Law …

requires network operators, including

all companies headquartered in China,

to store select data within country and

allows for Chinese authorities to do

‘spot-checks’ on a company’s network

operations.”

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LENOVO’S CHINESE COMMUNIST PARTY CONNECTIONS AND SUSPECT PRODUCT INSECURITIES

Lenovo is the world’s largest manufacturer of personal computers, growing from a two-room security

guardhouse in 1984 to a global company today with headquarters in China and US headquarters in

Morrisville, North Carolina.23 What has become Lenovo today was founded in China in 1984 by Chinese

computer scientist Liu Chuanzi and ten of his colleagues. The company was originally named New

Technology Developer Inc., changing its name soon after founding to Legend Holdings.24 Legend

Holdings still exists today as the capital investing arm of Lenovo and is a stakeholder in other Chinese

technology firms, such as Lexmark.25

Lenovo received funding, in the amount of $25,000, from the Chinese Academy of Sciences which

operates 100 research institutions in China responsive to Beijing’s direction and planning. In 1984 China

was very much a “planned economy,” with business loans from the government rare as the state held tight

control over industry and production.26 The Chinese Academy of Sciences is considered by the USCC to

be a nationally directed infrastructure of institutions, seeking to obtain technology from foreign firms in

key scientific areas that often have military applications.27 This prioritization of foreign technology

acquisition can be seen directly in Lenovo’s history, as the company has moved to purchase PC, server

and mobile communications divisions from major American corporations.28

Lenovo gained position as an international computer hardware market competitor in 2005 with the

company’s purchase of IBM’s ThinkPad division. Relatively unknown in the global marketplace before

the purchase, Lenovo found itself among major players in the technology sphere, relying on the brand and

name recognition of its newly acquired ThinkPad product line to compete for government contracts.29

Shortly after the acquisition, the United States Department of State moved to purchase Lenovo laptops for

employees.32 Congressman Frank Wolf, a critic of the IBM-Lenovo deal, quickly moved to ensure the

State Department understood the risks associated with using the Chinese-made machines. Congressman

Wolf stated in a later interview that, “They (State Department) were not able to cancel the purchases but

made sure that none of them were used for anything.”33

The 2019 Department of Defense IG report referenced the persisting vulnerabilities present in Chinese

technology, including the well-known Superfish software that was pre-installed on Lenovo laptops sold in

the United States in 2014.34 This software billed itself as a medium for advertisement targeting, but in

reality served as an information aggregator to identify user trends, surveil user credentials and funnel user

data to data storage centers on the Chinese mainland. Various technology news outlets referenced this

bloatware as the most serious breach of user trust of the decade, with the Federal Trade Commission

eventually investigating the software, fining Lenovo $3.5 million for the attempted data siphoning.35

In fact, Lenovo has a history of chronic and persisting vulnerabilities in their consumer products, with

eight vulnerabilities documented over the past decade alone. These vulnerabilities have occurred in

products ranging from personal computers to smart watches, many times compromising personal privacy

and security.

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At least eight such vulnerabilities have been revealed in the past five years, including:36,37,37,39,40,41,42,43,44

“High severity” security vulnerability left users of

specific network-attached storage devices with

data exposed to anyone who went looking for it.

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LEXMARK’S CHINESE COMMUNIST PARTY CONNECTIONS AND SUSPECT PRODUCT INSECURITIES

While Lexmark’s US operations are based in Lexington, Kentucky, the company is owned by a Chinese

conglomerate including investing firms Apex, PAG Asia Capital and Legend Holdings.45 Lexmark was

acquired by the Chinese consortium in 2016 for $3.6 billion in the largest acquisition in the global printer

industry.46 Lexmark management cited the sale as a catalyst for future growth, as the company, through

the new ownership, would be able to break into the lucrative Chinese market.47

Lexmark’s connection to the Chinese government is something that has been well documents by

government agencies and US courts. In a landmark case, hardware vendor Iron Bow Technologies sued

the Social Security Administration (SSA) after SSA leadership concluded the Lexmark printers sold by

Iron Bow posed too great a security risk to government networks.48

The Social Security Administration, determined to mitigate supply chain risks in procurement practices,

decided that printers manufactured by Lexmark presented an unacceptable level of supply chain risk due

to the company’s Chinese ownership and ties to the Chinese government.49

In a case heard before the Court of Federal Claims, the SSA reasoned that printers connected to the

agency’s virtual private network (VPN) could be used to siphon sensitive data. This argument was met

with stiff resistance from Iron Bow, countering the SSA’s points by stating a) Lexmark printers are

already in use within the Federal Government; 2) Lexmark’s acquisition by the Chinese was reviewed and

approved by the Federal Government under the Committee on Foreign Investment in the United States,

with a requirement that a national security agreement be signed in conjunction with the purchase; and 3)

that Lexmark’s Chinese owners with ties to the Chinese Government were minority owners.50

The Court of Federal Claims ruled in favor of the SSA, stating that the CFIUS agreement with Lexmark

does not address supply chain risks and that Lexmark’s 49% minority ownership was enough to pose a

national security risk.51

Lexmark has a history of software vulnerabilities in its printers, with the company cited 20 times for

cybersecurity vulnerabilities by cyber research firm CVE.87 The vulnerabilities included the storing and

transmitting of sensitive network credential in plain text, absent standard encryption practices used to

protect such information. The Department of Defense Inspector General stated that the vulnerabilities

presented by the inclusion of Lexmark printers in government networks could allow for remote attackers

to conduct cyberespionage or launch a denial of service attack on a Department of Defense Network.88

The Lexmark story is a case study for state and federal procurement officials. Lexmark, a company owned

by Chinese financial firms, was proven in court to be corrupted by the Chinese government to the point of

exclusion from the Social Security Administration’s IT network.52

Also shown in the case of Lexmark is the danger of Chinese capital flowing into the American tech

sector, as well-known brands can be purchased by foreign adversarial governments absent the knowledge

of the general public. By purchasing Lexmark in 2016, Chinese investors, included those tied to the CCP

and Chinese Academy of Sciences, have inserted Chinese technology into numerous sensitive government

networks.

Similarly, Lexmark hardware has carried a series of security flaws in recent years, with the company’s

printers being the subject of multiple technical beaches.53 The National Vulnerabilities Database lists 20

cybersecurity vulnerabilities for Lexmark, including storing and transmitting sensitive network access

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credentials in plain text and allowing the execution of malicious code on the printer.54 The 2019 DoD

Inspector General Audit stated, “These vulnerabilities could allow remote attackers to use a connected

Lexmark printer to conduct cyberespionage or launch a denial of service attack on a Department of

Defense Network.”55

After the release of the DoD IG Report, Lexmark released a statement saying that each Lexmark hardware

issue referenced in the report had been fixed, and also called the characterization of the company in the

report “unfair.”56 This response from the company does little to reconcile the security threats posed to

sensitive government and private sector networks by the Chinese manufacturer.

STATES HAVE NO STANDARD PROCESS TO EVALUATE INSECURE TECHNOLOGY

As explained above, federal policymakers in the United States have long focused on curtailing the

security threats posed by Chinese-owned technology through federal regulation, neglecting the threat

posed to state and local governments by malign equipment. Congress and federal agencies have given

necessary attention to Chinese threats, with agencies ranging from the Department of Commerce to the

United States China Economic Security Review Commission releasing recommendations and guidelines

pertaining to Chinese equipment. Lost in the policy mix, however, have been state and local governments,

giving Chinese manufacturers the opportunity to win massive state procurement contracts unbridled by

federal government oversight.

The leading state procurement conglomerate, the National

Association of State Procurement Officers, is regarded as

the “gate keeper” for state government purchasing across

the United States. NASPO’s ValuePoint portal notes its

abilities to provide, “the highest standard of excellence in

public cooperative contracting, leveraging the leadership

and expertise of all states and the purchasing power of their public entities.”57 ValuePoint states that its

platform provides the “highest valued, reliable and competitively sourced contracts – offering public

entities outstanding prices.”

Not accounted for by NASPO, or its ValuePoint procurement portal, are the security vulnerabilities

existing in the products and contracts offered. By branding itself as the leading and most trusted vendor

portal for state procurement officers, NASPO and ValuePoint could create a false sense of security among

state officials purchasing equipment through and outside of their portals, ending in the procurement of

state equipment from vendors with known and documented security vulnerabilities. By condoning the

purchasing of these products, NASPO could unknowingly be increasing the volume of compromised

technology purchased and used across member and non-member states. Indeed many state procurement

officers, trusting the valuable work of NASPO in the past, likely assume that NASPO performs

cybersecurity review even though it does not.

Certain vendors contracting with state governments through NASPO, like Lenovo and Lexmark, are

banned by federal agencies – but still available for purchase by state level entities. This lack of continuity

between state and federal officials and agencies has resulted in the widespread purchasing of

compromised equipment at the state level, mostly for the sake of price, leaving citizen data at the behest

of foreign actors seeking access to American data.

“Certain vendors contracting with state

governments through NASPO, like

Lenovo and Lexmark, are banned by

federal agencies – but still available for

purchase by state level entities.”

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EXISTING STATE CONTRACTS JEOPARDIZE SENSITIVE INFORMATION

Even while federal oversight and defense agencies warn against the use of Lenovo and Lexmark

equipment in cyber networks, states governments continue to purchase from both companies. Our

findings show that states purchase from Lexmark and Lenovo either through NASPO, the state purchasing

conglomerate, or directly from the companies.

NASPO negotiated contract templates for 33 states with Lenovo58 for computer equipment or servers.

Among those 33, 10 have additional contracts with Lexmark for printers, copiers or print services.59

However, of the 17 states outside of the NASPO agreement, more than half also have purchased

equipment directly. Furthermore, we have verified state purchases for either company’s products in a

dozen states; that spending is summarized on the following pages.

Vendor General Description Initial Year Participating States

Lenovo US Computers and equipment60 2015 32

Lenovo Global Storage / servers61 2017 12

Lexmark Managed print services62 2019 5

Lexmark Copiers and managed print63 2016 6

State Government Contracts with Lenovo and Lexmark

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Among the state agencies contracting with Chinese controlled firms are state Supreme Courts,

Departments of Health, Departments of Corrections and other law enforcement agencies, Education

Departments, agencies responsible for developing IT policies and distributing IT products, and others.

These state agencies are responsible for the processing

and storage of some of the most private and leveragable

data in the public sphere, and the introduction of malign

equipment into these departments fosters unacceptable

vulnerabilities .64

NASPO’s 2015 agreement with Lenovo includes Terms

and Conditions – section 7.4 titled “Customer

Information” – stipulating that customer data can be

transferred, stored and disclosed in any country where

such action is required by law.65

Given the passage of China’s dangerous 2017 National Intelligence Law, the terms and conditions permit

the storage of data in China and the disclosure of that data to the Chinese Communist Party upon

request.66 While such a clause in contracting may be commonplace by Chinese-owned vendors, there is

no reason why American data should be brought to China.

This access to citizen and government data is priceless in the hands of an adversarial government, creating

a network of machines capable of delivering vast amounts of American data unabridged by court orders

and legal proceedings. This access gives Chinese officials the ability to monitor and aggregate sensitive

government data on American citizens – in real time.

Though the details made public about procurement and vendor payments vary among the states, available

records show how Lenovo and Lexmark hardware infiltrated a myriad of state agencies, potentially

exposing sensitive information of American government employees and private citizens.67

The next section of this paper explores case studies from Wisconsin and Arkansas, but details on several

more states are readily available in Delaware, Florida, Hawaii, Massachusetts, New York, Ohio,

Oklahoma, Rhode Island, Tennessee and West Virginia. Additionally, many more states hold contracts

with Lexmark and/or Lenovo, but spending with the companies is unknown, including Georgia, Indiana,

Michigan, Mississippi, Pennsylvania, and Texas.

Delaware: Since 2015, Delaware has spent over $175,000 on Lenovo equipment, with over

$118,000 on computers in primary schools.68 Other agencies spending public funds on Lenovo

hardware include the state Superior Court, state Family Court and Department of Services for

Children, Youth and their Families. Since 2016, the Department of Transportation and

Delaware State University spent $67,884 on Lexmark products and services.69

Florida: Since 2015, Florida agencies made over $863,000 in vendor payments to Lenovo.

The agencies that spent the most on the company’s services were the Department of Health

($391,885); Justice Administration ($199,684); Agency for Healthcare Administration

($121,607); Department of Corrections ($63,807); Environmental Protection ($25,686);

Agency for State Technology ($23,571); and the Department of Law Enforcement ($14,198).

“Among the state agencies contracting

with Chinese controlled firms are state

Supreme Courts, Departments of

Health, Departments of Corrections

and other law enforcement agencies,

Education Departments, agencies

responsible for developing IT policies

and distributing IT products, and

others.”

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Since 2016, the state made over $92,000 in vendor payments to Lexmark, from the

Department of Highway Safety and Motor Vehicles, the State Courts System and the

Department of Financial Services.70,71

Hawaii: The Hawaii Health Care Systems Corporation is authorized to spend $112,038 on

Lenovo hardware and maintenance between May 1, 2019 and April 30, 2020.

Massachusetts: Since 2015 the Bay State has spent approximately $5 million on Lenovo

products, including $4.4 million in purchases made by the Department of Transportation.72

New York: Home to the world’s largest financial institutions as well as the New York Stock

Exchange, the state currently possesses more than $46 million73 in contracts with Lenovo

($2,605,000 spent) and $16 million74 ($785,000) with Lexmark. The high-volume of Chinese

equipment in state data systems presents significant risk to the data security of US and

international financial markets and all New Yorkers.

Ohio: Last year Ohio paid75 Lenovo $78,610. Dating back to 2015, the state spent $182,720

on Lexmark services.

Oklahoma: In 2019 alone, the Office of Management and Enterprise Services – the agency

responsible for providing finance, property, human resources and technology services to other

state offices – made $273,959 in payments to Lenovo.76

Rhode Island: Since 2015, the state has made $102,239 in vendor payments77 to Lenovo,

nearly all of money has been spent by the Office of the Public Defender ($46,259), and the

Office of the Secretary of State ($46,137), the agency responsible for ensuring “elections are

fair, fast and accurate.”78

Tennessee: Lenovo provides laptops to state students as part of the Tennessee Department of

Education’s Laptop Rental Program.79

West Virginia: Beginning in 2014, West Virginia paid more than $500,000 for Lenovo

products, mostly by state universities, while also spending $70,000 on Lexmark products.80

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CASE STUDY 1 – LENOVO IN WISCONSIN

Background:

The State of Wisconsin, a signee of the NASPO ValuePoint Contract

MNWNC-117 (Bands 1,2,3) and MNWNC-135 (Bands 4,5) 2015-2020

Computer Equipment, Peripherals, & Related Devices, purchased $93,399.23 of

Lenovo equipment in FY 2019. There were 5 departments within the state that purchased the equipment,

with the largest purchase being made by the Wisconsin State Supreme Court.81 This Chinese-

manufactured equipment gives access to the Chinese Communist Party into state networks while also

allowing the CCP to access that data upon request as referenced in Section 7.1 of the Lenovo User

Agreement and the 2017 Chinese Cybersecurity Law.

Risks Posed to Wisconsin State Government:

Lenovo, the world’s leading manufacturer of personal computers, is partially owned by the Chinese

Academy of Sciences and compelled to comply with all Chinese cybersecurity laws as a business

operating out of mainland China. Lenovo is also a market leader in the server sector, purchasing IBM’s

x86 server business in 2014.82

By procuring equipment from Lenovo, Wisconsin, state officials could be unwittingly granting access to

citizen data to the Chinese government, as referenced in Section 7.4 of the 2015 Lenovo User Agreement

– the same year NASPO signed a 30+ state contract with the company. This language reads:

7.4 Customer Information. Lenovo and its affiliates may store, use and process contact

information and other information about Customer, including names, phone numbers,

addresses, and e-mail addresses, necessary to perform under this Agreement, including but not

limited to warranty service. Such information will be processed and used in connection with

this Agreement and the Products or Services. It may be transferred by Lenovo to any country

where Lenovo does business; and may be provided to entities acting on Lenovo’s behalf in

relation to this Agreement and the Products or Services. Lenovo may also disclose such

information where required by law.83

Buried in the later subsections of the Lenovo User Agreement, this clause gives the company permission

to send user data back to China, and then disclose that data where required by law. In 2017, the Chinese

government enacted a Cybersecurity Law granting access to network data from Chinese companies upon

request of the Chinese Communist Party. This translates to CCP officials being able to obtain American

consumer data, as Lenovo is compelled by law to share this data with party officials or risk legal

reprimand from the Communist regime.84

Wisconsin Agencies Procuring Lenovo Equipment in 2019 and Purchase Amounts:85

- Department of Employee Trust Funds: $4,294.63

- Elections Commission: $17,431.70

- Court of Appeals: $5,872.00

- Supreme Court: $61,675.00

- Department of Revenue: $6,630.90

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Ramifications of Procurement

With Lenovo and Lexmark’s documented security vulnerabilities and a requirement to support the

Chinese government, procurement officials must ask why these devices are allowed, particularly for

computing responsibilities for departments of elections and courts. As the United States finds itself under

attack from foreign actors, notably in its democratic elections, procurement officials should work to

mitigate risk from state networks. Ridding these networks of known malign foreign equipment is a

prudent step.

CASE STUDY 2 – LEXMARK IN ARKANSAS

Background:

Lexmark specializes in the manufacturing of printers and printer hardware.

Lexmark has a strong federal presence, with hardware in federal agencies

ranging from the Department of Defense to the Internal Revenue Service.

Lexmark also has a standing purchasing contract with CDW (tech equipment vendor and wholesaler) and

the General Services Administration (GSA), allowing federal agencies to purchase Lexmark equipment

from an online marketplace. The Lexmark privacy agreement also allows for information to be shared

across national borders, namely with countries in which Lexmark operates – i.e. China, the location of

Lexmark’s holding companies.86

The Lexmark Customer Agreement for Printer and Storage Devices uses language that allows for data

storage, transfer and processing in the United States and “other countries” where Lexmark maintains

facilities. Given the company’s operations in mainland China, Lexmark can store and process data in

China and could be compelled to turn that data over the CCP.

Lexmark Customer Agreement:

- Cross-border transfers: “We are a global organization with offices and customers around the

world. To efficiently manage our business and best serve you, all kinds of data – not just Personal

Data – may be transferred and accessed by Lexmark entities worldwide on the basis of this

Privacy Notice and in alignment with international data privacy standards. We may store, transfer,

and process Personal Data in the United States and other countries where we maintain

facilities. By using our websites or services you consent to any such transfer of information

outside your country.”89

At minimum, the language appears to violate the California Consumer Privacy Act, the new law which,

failing Congressional action, is America’s new de facto privacy standard.90

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State Focus: Arkansas

While this paper focuses primarily on NASPO’s agreements with Chinese companies, states do not need

to negotiate through the organization to order Chinese-manufactured equipment. Arkansas is not a signee

to the NASPO agreements with Lexmark, but has negotiated several contracts with the company since

August 2018, which authorizes the state to spend $14,884,440.64; these include two separate $4.1 million

contracts for “copy machines, digital” and two other $3.25 million contracts for “general equipment.”91

Lexmark equipment and services for FY20 have already totaled more than $65,000 including the Office

of Child Support Enforcement ($28,133.12), Department of Corrections ($24,321.70), and Department of

Finance and Administration ($13,109.58). Given the nearly $15 million contracts in place, final spending

tallies at the end of the fiscal year will likely be much higher.92

Besides Lexmark, Arkansas holds 36 contracts with Lenovo totaling $1,282,295. Since 2015, the state has

made over $500,000 in vendor payments to Lenovo, including the Department of Health for more than

$173,000 and $139,000 for the Department of Information Systems. Additional payments have been made

for the Geological Survey, Administrative Office of the Courts, Supreme Court, and the Department of

Education.92

Given the diverse missions of these agencies, their extensive reach, and how they all handle and store

sensitive information, it is not a stretch to say that personal data of Arkansas residents and the data of

enterprises registered in the state is at risk of being transferred to China.

Federal Agency Purchasing of Lexmark Equipment

Besides state agencies, the United States government contracting website, USA Spending, lists both

current and past Lexmark contracts in its online database. These contracts range in transaction amount

from more than $25 million to below $100,000, with agencies procuring the technology listed below.

Department of Defense Department of the Army93 $453,150

Department of the Air Force94 $1,348,374.24

Department of Agriculture Chief Financial Officer95 $7,344,431.72

Social Security Administration Social Security Administration96 $466,369.76

Social Security Administration97 $25,467,857.24

Department of Transportation Immediate Office of the

Secretary of Transportation98

$2,264,956.17

Federal Aviation

Administration99

$464,337.90

National Transportation Safety Board NTSB100 $860,809.95

Department of the Treasury Internal Revenue Service101 $185,000

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Procurement Ramifications

Procuring Lexmark equipment introduces systemic risk to government networks. Lexmark printers store

sensitive print and network information on device hard drives and then risk exposing that information via

unencrypted communication with other devices. By procuring Lexmark equipment, federal employees

risk the network security of their departments while also threatening the integrity and functionality of the

greater agency network infrastructure. Procurement officials should note that that denial of service attacks

have been highlighted by the Department of Defense as a risk of using Lexmark equipment.102

SUGGESTED REMEDIES

#1. States Should Review Current Contracts For Security Vulnerabilities

To rid networks of persisent threats from malign Chinese technology and to ensure safety and security,

states should review existing contracts with Chinese-owned vendors and assess the risks and

vulnerabilities they pose. For example, what kind of liabilities would states face if sensitive data is

compromised? Moreover how will state residents, businesses, and other organizations react when they

learn that their valuable information can be transferred to China?

State procurement officials are gatekeepers to the data and privacy of the citizens and public entities under

their purview and must understand and address the risks associated with the purchasing and use of

Chinese equipment from Lenovo and Lexmark. While devices like laptops and printers seem innocuous to

the average user, these network components can serve as springboards for foreign governments to spy on

American citizens, collect sensitive information, and influence democratic elections. The first step in

mitigating the risk associated with Chinese equipment is to take the equipment out of American networks,

replacing it with trusted products. Moreover, states should reject any contract terms that allow the

expropriation of data. There is no justification for data collected by US states to be shared with the

Chinese government under any circumstances.

#2. NASPO Should Consider Incorporating Cybersecurity Evaluations into its Offering or Clarify its Role

As the standard-bearer and leading state procurement conglomerate in the United States, the National

Association of State Procurement Officers (NASPO) should lead the way in mitigating the threat posed to

public entities procuring IT products. This begins with NASPO leaders incorporating security

vulnerabilities into the contracting process. This could include partnering with federal agencies like the

Department of Commerce or Department of Homeland Security’s Cybersecurity & Infrastructure Security

Agency (CISA) to develop for recommendations for assessing the security of products. This is especially

important as NASPO renegotiates national purchasing contracts. Lenovo’s state purchasing agreement

with NASPO expires in March of 2020; Lexmark in 2021.

NASPO helps state procurement officials use resources wisely and improve procurement negotiation.

NASPO should remind its members that cybersecurity evaluation is a separate function not included in

the NASPO review. Given NASPO’s experience and credibility with its members, developing

competence in the information security assessment domain would add value to its members.

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Works Cited:

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5. Ibid

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governments/#gref

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economy/environment/article/21955887/viewpoint-why-is-china-cheaper

9. Who We Are. (2020). Retrieved from https://www.naspo.org/About-Us/Who-We-Are

10. Ibid

11. Lenovo Sales Agreement . (n.d.). Retrieved from https://www.lenovo.com/medias/Sales-Terms-and-Conditions-

US.html?context=bWFzdGVyfHJvb3R8MTMzNzV8dGV4dC9odG1sfGg3MC9oYWMvOTQ0MTA1NTgwMTM3NC5odG1sfDgwM2RjYzkxMz

NhYWYzOTJiNGEwZjU1ZjFhMWZkOGM5M2JhYzVmYTkwNzQ2OTk0ZWE5NjVkOWZiMWYwNzdhZmE

12. Creemers, R., Triolo, P., & Webster, G. (2018, June 29). Translation: Cybersecurity Law of the People's Republic of China (Effective June 1,

2017). Retrieved from https://www.newamerica.org/cybersecurity-initiative/digichina/blog/translation-cybersecurity-law-peoples-republic-china/

13. Ibid

14. Ibid

15. Ibid

16. Wu, H. (2016, December 4). Final Passage of China's Cybersecurity Law. Retrieved from https://globalcompliancenews.com/final-passage-chinas-

cybersecurity-law-20161204/

17. Creemers, R., Triolo, P., & Webster, G. (2018, June 29). Translation: Cybersecurity Law of the People's Republic of China (Effective June 1,

2017). Retrieved from https://www.newamerica.org/cybersecurity-initiative/digichina/blog/translation-cybersecurity-law-peoples-republic-china/

18. Audit of the DoD’s Management of the Cybersecurity Risks for Government Purchase Card Purchases of Commercial Off-the-Shelf Items DODIG-

2019-106. (2019, July 30). Retrieved from https://www.dodig.mil/reports.html/Article/1920236/audit-of-the-dods-management-of-the-

cybersecurity-risks-for-government-purchase/?_sm_au_=iVV0tD0fjsFkZHNM01TfKK3Qv3fc4

19. Ibid

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warns-chinese-computer-gear-poses-cyber-spy-threat/

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magazine.com/news/us-navy-dumps-lenovo-servers/

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list.php?vendor_id=683&product_id=0&version_id=0&page=1&hasexp=0&opdos=0&opec=0&opov=0&opcsrf=0&opgpriv=0&opsqli=0&opxss=

0&opdirt=0&opmemc=0&ophttprs=0&opbyp=0&opfileinc=0&opginf=0&cvssscoremin=0&cvssscoremax=0&year=0&cweid=0&order=1&trc=31

&sha=97669f68b03c99a5cebcc8d0d0022600b1ecd781

23. Sarokin, D. (2019, February 11). The History of Lenovo. Retrieved from https://bizfluent.com/info-8081800-history-lenovo.html

24. Ibid

25. Newswire, P. R. (2016, November 29). Lexmark announces completion of acquisition by Apex Technology and PAG Asia Capital. Retrieved from

https://newsroom.lexmark.com/2016-11-29-Lexmark-announces-completion-of-acquisition-by-Apex-Technology-and-PAG-Asia-Capital

26. Sarokin, D. (2019, February 11). The History of Lenovo. Retrieved from https://bizfluent.com/info-8081800-history-lenovo.html

27. Ibid

28. Holdings, L. (n.d.). Legend Holdings" Company History. Retrieved from http://www.legendholdings.com.cn/History_en/index.aspx?nodeid=1044

29. Bajarin, T. (2015, May 4). How Lenovo Became a Global PC Powerhouse After IBM Deal. Retrieved from https://time.com/3845674/lenovo-ibm/

30. Ibid

31. Ibid

32. Gross, G. (2006, May 19). U.S. State Department to limit use of Lenovo PCs. Retrieved from https://www.computerworld.com/article/2545522/u-s-

-state-department-to-limit-use-of-lenovo-pcs.html

33. Bartz, D. (2014, January 31). Experts predict Lenovo's U.S. buys will pass regulatory muster. Retrieved from https://www.reuters.com/article/us-

motorolamobility-lenovo-regulation-idUSBREA0U06C20140131

34. Audit of the DoD’s Management of the Cybersecurity Risks for Government Purchase Card Purchases of Commercial Off-the-Shelf Items DODIG-

2019-106. (2019, July 30). Retrieved from https://www.dodig.mil/reports.html/Article/1920236/audit-of-the-dods-management-of-the-

cybersecurity-risks-for-government-purchase/?_sm_au_=iVV0tD0fjsFkZHNM01TfKK3Qv3fc4

35. Lenovo Settles FTC Charges it Harmed Consumers With Preinstalled Software on its Laptops that Compromised Online Security. (2017, December

29). Retrieved from https://www.ftc.gov/news-events/press-releases/2017/09/lenovo-settles-ftc-charges-it-harmed-consumers-preinstalled

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36. Rubin, B. F. (2017, September 5). Lenovo settles with the feds over Superfish adware issue. Retrieved from https://www.cnet.com/news/lenovo-

settles-on-superfish-adware-will-pay-3-5-million/

37. Winder, D. (2019, July 18). Lenovo Confirms 36TB Data Leak Security Vulnerability. Retrieved from

https://www.forbes.com/sites/daveywinder/2019/07/17/lenovo-confirms-36tb-data-leak-security-vulnerability

38. Whittaker, Z. (2019, February 11). Lenovo Watch X was Riddled With Security Bugs, Researcher Says . Retrieved from

https://techcrunch.com/2019/02/11/lenovo-watch-x-security-bugs/

39. Coppock, M. (2018, January 30). https://www.digitaltrends.com/computing/lenovo-fingerprint-manager-pro-

vulnerable/?_sm_au_=iVVj67715fn2cDnc. Retrieved from https://www.digitaltrends.com/computing/lenovo-fingerprint-manager-pro-vulnerable/

40. Wiggers, K. (2017, August 1). How to keep yourself safe from Chinese spyware on budget Android phones. Retrieved from

https://www.digitaltrends.com/mobile/kryptowire-adups-news/

41. Osborne, C. (2016, June 2). Lenovo begs users to uninstall Accelerator app in the name of security. Retrieved from

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42. George, A. (2019, August 26). Your Lenovo laptop may have a serious security flaw. Retrieved from

https://www.digitaltrends.com/computing/lenovo-laptops-security-flaw/

43. Commission, F. T. (2017, December 29). Lenovo Settles FTC Charges it Harmed Consumers With Preinstalled Software on its Laptops that

Compromised Online Security. Retrieved from https://www.ftc.gov/news-events/press-releases/2017/09/lenovo-settles-ftc-charges-it-harmed-

consumers-preinstalled

44. Philipp, J. (2015, September 9). Spy Software Found Preinstalled on Lenovo, Huawei, and Xiaomi Smartphones. Retrieved from

https://www.theepochtimes.com/spy-software-found-pre-installed-on-lenovo-huawei-and-xiaomi-smartphones_1748900.html

45. Chinese firms take over printer giant Lexmark. (2016, December 13). Retrieved from https://www.chinadaily.com.cn/business/2016-

12/13/content_27658491.htm

46. Lexmark announces completion of acquisition by Apex Technology and PAG Asia Capital. (2016, November 29). Retrieved from

https://newsroom.lexmark.com/2016-11-29-Lexmark-announces-completion-of-acquisition-by-Apex-Technology-and-PAG-Asia-Capital

47. Chinese firms take over printer giant Lexmark. (2016, December 13). Retrieved from https://www.chinadaily.com.cn/business/2016-

12/13/content_27658491.htm

48. Federal Claims, U. S. C. of. (2018, March 27). Pre-Award Bid Protest; Judgment Upon the Administrative Record; RCFC 52.1; Supplementing the

Administrative Record; Permanent Injunction. . Retrieved from https://federalnewsnetwork.com/wp-content/uploads/2018/05/ssa-supply-chain-

court-case-march-2018.pdf

49. Ibid

50. Ibid

51. Miller, J. (2019, January 23). SSA bid protest win demonstrates power of acquisition to protect the supply chains. Retrieved from

https://federalnewsnetwork.com/reporters-notebook-jason-miller/2018/05/ssa-bid-protest-win-demonstrates-power-of-acquisition-to-protect-the-

supply-chains/

52. Ibid

53. Spring, T. (2017, December 18). User 'Gross Negligence' Leaves Hundreds of Lexmark Printers Open to Attack. Retrieved from

https://threatpost.com/user-gross-negligence-leaves-hundreds-of-lexmark-printers-open-to-attack/129187/

54. Database, N. V. (2019, February 11). CVE 2019-6489 Detail. Retrieved from https://nvd.nist.gov/vuln/detail/CVE-2019-6489

55. Audit of the DoD’s Management of the Cybersecurity Risks for Government Purchase Card Purchases of Commercial Off-the-Shelf Items DODIG-

2019-106. (2019, July 30). Retrieved from https://www.dodig.mil/reports.html/Article/1920236/audit-of-the-dods-management-of-the-

cybersecurity-risks-for-government-purchase/?_sm_au_=iVV0tD0fjsFkZHNM01TfKK3Qv3fc4

56. Briefings, A. (2019, August 2). Lexmark Comments on DoD Reports Claiming Its Printers Pose Security Risk. Retrieved from https://www.action-

intell.com/2019/08/02/lexmark-comments-on-dod-report-claiming-its-printers-pose-security-risk/

57. Point, N. A. S. P. O. V. (n.d.). NASPO Value Point: How It Works . Retrieved from - https://www.naspovaluepoint.org/#/page/How-it-Works

58. WELCOME TO THE LENOVO SITE FOR NATIONAL ASSOCIATION FOR STATE PROCUREMENT OFFICIALS. (n.d.). Retrieved from

https://solutions.lenovo.com/naspo/

59. NASPO Managed Print Services 2016-2021. (n.d.). Retrieved February 1, 2020, from https://www.naspovaluepoint.org/portfolio/managed-print-

services-2016-2021/

60. https://www.naspovaluepoint.org/portfolio/computer-equipment-peripherals-related-services-2015-2020/lenovo-united-states-inc/

61. https://www.naspovaluepoint.org/portfolio/computer-equipment-peripherals-related-services-2015-2020/lenovo-global-technology/

62. https://www.naspovaluepoint.org/portfolio/copiers-managed-print-services-2019-2024/lexmark-international-inc/

63. https://www.naspovaluepoint.org/portfolio/managed-print-services-2016-2021/lexmark-international-inc/

64. Open Book Winsconsin. (n.d.). Retrieved January 6, 2020, from

http://openbook.wi.gov/PurchaseOrderDetail.aspx?AgencyCode=680&TransactionNumber=0000000296&ProviderCode=0239d537-902c-4a00-

b2ad-c30c8f1a9f20&ContractId=505ENT-O16-NASPOCOMPUT-

13#&&aGkjSsKEmJhEFqJgx7RzVvazW18BitPrS7n2VpJESs8iEDdGqKRy3LxuHHqL0QuvmN4Wpx dL3zkbw o

ArhhO2s6cWLJ9KLlzJS7REO414IJ cfw81z2dEXWXZTb2y7F/i6p oKJYlPUFKlMzFGJw==

65. Lenovo Sales Agreement . (n.d.). Retrieved from https://www.lenovo.com/medias/Sales-Terms-and-Conditions-

US.html?context=bWFzdGVyfHJvb3R8MTMzNzV8dGV4dC9odG1sfGg3MC9oYWMvOTQ0MTA1NTgwMTM3NC5odG1sfDgwM2RjYzkxMz

NhYWYzOTJiNGEwZjU1ZjFhMWZkOGM5M2JhYzVmYTkwNzQ2OTk0ZWE5NjVkOWZiMWYwNzdhZmE

66. Ibid

67. Data, D. O. (n.d.). Lexmark International Broken Down by Vendor. Retrieved from https://opencheckbook.delaware.gov/#!/year/All

Years/explore/0-/vendor/LEXMARK INTERNATIONAL INC/1-/department

State/Federal Contract Data:

68. https://opencheckbook.delaware.gov/?_sm_au_=iVVzrM50fpPT5ssP01TfKK3Qv3fc4#!/year/All%20Years/explore/0-/vendor/LENOVO+INC/0-

/department

69. https://opencheckbook.delaware.gov/#!/year/All%20Years/explore/0-/vendor/LEXMARK+INTERNATIONAL+INC/1-/department

70. https://fs.fldfs.com/dispub2/newvpymt4.shtml

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71. https://fs.fldfs.com/dispub2/newvpymt4.shtml

72. https://hands.ehawaii.gov/hands/awards/award-details/159715?_sm_au_=iVVzrM50fpPT5ssP01TfKK3Qv3fc4; http://massopenbooks.org/vendor-

payments/

73. https://wwe2.osc.state.ny.us/transparency/contracts/contractsearch.cfm

74. https://wwe2.osc.state.ny.us/transparency/contracts/contractsearch.cfm

75. https://procure.ohio.gov/proc/currentContractsResults.asp?t1=0&t2=0&t3=0&CN=&IN=&SK=&CMPT=All&MT=All&KST=All%20Words&CT=ALL&CSTAT=ALL&SDT=0&SD=&ED=&CMPN=Lenovo&CTT=All%20Contract%20Types%20/%20Methods&SDTT=-

%20Select%20Type%20-%20&CMPTT=&MTT=&CSTATT=All; http://ohiotreasurer.gov/Transparency/Ohios-Online-Checkbook/Advanced-

Search

76. https://data.ok.gov/dataset/state-oklahoma-vendor-payments-fiscal-year-2019

77. http://www.ripay.ri.gov/VendorPayments.aspx

78. https://www.sos.ri.gov/about-us

79. https://www.tn.gov/education/district-technology/laptop-program.html

80. http://www.transparencywv.org/

81. Open Book Winsconsin. (n.d.). Retrieved January 6, 2020, from

http://openbook.wi.gov/PurchaseOrderDetail.aspx?AgencyCode=680&TransactionNumber=0000000296&ProviderCode=0239d537-902c-4a00-

b2ad-c30c8f1a9f20&ContractId=505ENT-O16-NASPOCOMPUT-

13#&&aGkjSsKEmJhEFqJgx7RzVvazW18BitPrS7n2VpJESs8iEDdGqKRy3LxuHHqL0QuvmN4Wpx dL3zkbw o

ArhhO2s6cWLJ9KLlzJS7REO414IJ cfw81z2dEXWXZTb2y7F/i6p oKJYlPUFKlMzFGJw==

Works Cited (cont.):

82. List of Lenovo's 7 Acquisitions, including Fujitsu - PC business and Marvell Semiconductor. (n.d.). Retrieved from

https://www.crunchbase.com/search/acquisitions/field/organizations/num_acquisitions/lenovo

83. Lenovo Sales Agreement . (n.d.). Retrieved from https://www.lenovo.com/medias/Sales-Terms-and-Conditions-

US.html?context=bWFzdGVyfHJvb3R8MTMzNzV8dGV4dC9odG1sfGg3MC9oYWMvOTQ0MTA1NTgwMTM3NC5odG1sfDgwM2RjYzkxMz

NhYWYzOTJiNGEwZjU1ZjFhMWZkOGM5M2JhYzVmYTkwNzQ2OTk0ZWE5NjVkOWZiMWYwNzdhZmE

84. Ibid

85. Open Book Winsconsin. (n.d.). Retrieved January 6, 2020, from

http://openbook.wi.gov/PurchaseOrderDetail.aspx?AgencyCode=680&TransactionNumber=0000000296&ProviderCode=0239d537-902c-4a00-

b2ad-c30c8f1a9f20&ContractId=505ENT-O16-NASPOCOMPUT-

13#&&aGkjSsKEmJhEFqJgx7RzVvazW18BitPrS7n2VpJESs8iEDdGqKRy3LxuHHqL0QuvmN4Wpx dL3zkbw o

ArhhO2s6cWLJ9KLlzJS7REO414IJ cfw81z2dEXWXZTb2y7F/i6p oKJYlPUFKlMzFGJw==

86. Lexmark announces completion of acquisition by Apex Technology and PAG Asia Capital. (2016, November 29). Retrieved from

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